Just as trading with the EU seems to be settling into a new pattern, more changes are on the way. On 1 July 2021 the EU introduces its e-commerce VAT package that brings in several important changes to the way in which VAT is charged and declared. These changes mainly concern those businesses that sell goods to non-business customers (“B2C” sales) but some businesses selling services may also find that they will be liable to register in the EU from 1 July.
Many of the changes mirror the changes to VAT on imports that were introduced in the UK on 1 January 2021- the EU changes were supposed to happen at the same time but were delayed because of Covid-19.
Note that Great Britain is outside the EU when dealing with trade in goods but Northern Ireland is inside the EU Single Market for goods.
- Low value goods sold from outside the EU directly to non-business customers in the EU
Low Value Consignment relief will be abolished on 1 July 2021. This means that all goods imported to the EU will be subject to VAT. If a consignment has a value of less than €150 (about £135) the importer is responsible for charging local output VAT on the sale (rather than being charged import VAT). This means a requirement to register for VAT in each EU country where goods are sold – but see below for a new EU-wide scheme that can be used to simplify VAT registrations.
Remember that the €150 threshold applies to consignments not individual items. So if you package several small items together the value of the package may exceed the €150 threshold even though the items are individually below the threshold.
Import One Stop Shop (IOSS)
This has been introduced so that non-EU traders do not have to register in more than one EU country to account for the VAT on their sales of small consignments. A non-EU trader can register for IOSS in just one EU country and account for the VAT due in each country through just one IOSS return. When choosing an EU country to register in you should consider the ease of dealing with that country’s tax system; note that some countries require the appointment of a local fiscal representative to deal with VAT returns. Use of IOSS is not compulsory.
IOSS does not apply to businesses based in Northern Ireland as they are within the EU single market for goods.
Non-EU traders need to consider whether advertised prices include VAT and they should be aware of the different VAT rates that are charged in different EU countries.
The IOSS cannot be used for excise goods such as alcohol and tobacco.
It also should not be used for sales made via online marketplaces such as Amazon (see next paragraph).
- Low value goods sold from outside the EU via online marketplaces to non-business customers in the EU
If the goods are sent to EU non-business customers from outside the EU but the sale is “facilitated” by an online marketplace the output VAT on the sale is accounted for by the marketplace. Note that this does not apply where goods are held in the EU at the time of sale and the marketplace operator fulfils the sales order – a local VAT registration may be required. If the online marketplace charges VAT to the customer there is a deemed zero-rated sale from the supplier to the marketplace operator.
- Goods sold to non-business customers within the EU
The distance selling rules are abolished on 1 July 2021. This is replaced by an extension of the Mini One Stop Shop (MOSS) which becomes the One Stop Shop (OSS). If a non-EU trader holds goods in the EU and sells those goods within the EU the trader may register for OSS where they hold the goods a non-union trader. They can then account for B2C sales of goods in all EU countries via a single return. The alternative is having to register in all the EU countries where goods are sold. A €10,000 EU-wide threshold is available to businesses established in the EU before they must use the OSS.
Businesses based in Northern Ireland can use the scheme as EU traders.
- Services supplied from outside the EU to non-business customers in the EU
From 1 July the One Stop Shop (OSS) will also be extended to some services supplied to customers in the EU. It already covers supplies of digital and broadcasting services.
Northern Ireland is in the EU Single Market for goods – for supplies of services it is outside the EU.
Some services are treated as supplied where they are actually carried out. The principal services this affects are:
- Land-related services, for example, accommodation, building services, surveying etc – these services are carried out where the land is located.
- “Performance” services, for example artistic performances supplied to non-business customers.
- Admission to an event, including exhibitions, concerts, conferences etc
Where the place of supply is in an EU country and reverse charge is not available this results in a requirement to register in that EU country. From 1 July non-EU businesses can register for the Non-Union OSS in one EU country to account for the VAT that must be charged in more than one EU country through one VAT return.
There also seems to be a move in some EU countries to bring services such as accountancy, consultancy, and legal services into the scope of EU VAT when supplied to non-business customers. This is done by applying the “use and enjoyment” override to the place of supply rules. If this results in a requirement to register in more than one EU country the supplier can use the Non-Union OSS to declare the VAT on these services.
Businesses that are based in Great Britain that supply goods B2C and all UK businesses that supply services to non-business customers (B2C) in the EU need to be aware of the changes taking place from 1 July 2021.
If goods are sold via an online marketplace you need to be sure about who is going to account for the VAT.
If a business is required to register for VAT in several EU countries it should consider whether to register in one EU country for one or more of the special schemes. Registration is already open although the new schemes do not take effect until 1 July 2021.
IOSS – for low-value goods sold directly B2C from outside the EU to customers in the EU
OSS – for B2C sales of goods within the EU or between Northern Ireland and the EU
OSS (Non-Union) – for sales of certain services where place of supply is in the EU and supplier belongs outside the EU.
More information is available on the EU Commission’s website regarding the schemes including record-keeping requirements. https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en